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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 14733 / November 27, 1995
SECURITIES AND EXCHANGE COMMISSION v. SMARTBOX SYSTEMS GROUP
INC., ET AL. (United States District Court for the Eastern
District of Pennsylvania, Civil Action No. 95-7237)
On November 16, 1995, the Securities and Exchange Commission
("Commission") filed an emergency action in U.S. District Court
for the Eastern District of Pennsylvania seeking a temporary
restraining order ("TRO"), preliminary and permanent injunctions,
and other expedited relief against Smartbox Systems Group Inc.
("Smartbox") and its president and chairman, Theodore K. Flowers
("Flowers"). The action also seeks a freeze of assets against
Smartbox. The Honorable Stewart Dalzell granted the TRO and the
freeze of assets, and scheduled a preliminary injunction hearing
for December 14, 1995.
The Commission's complaint alleges that, from at least
November 1994 through the present, Flowers engaged in a $1
million fraudulent offering of Smartbox common stock. Flowers
and Smartbox have raised at least $65,000 from at least eight
individuals, and nearly all of the funds have been
misappropriated. In furtherance of the scheme, Flowers made
materially false and misleading statements to investors
concerning, among other things, the risk in the investment. He
portrayed the investment in Smartbox common stock as low risk, by
telling investors that almost all of their money would be held in
an escrow account, used only to acquire a wireless
telecommunications license through the Federal Communications
Commission, and returned to them in the event that the company
was unable to acquire such a license. In reality, Flowers
deposited the investor funds in a Smartbox bank account that he
controlled, and used the funds to pay various personal and
business expenses. He also gave some of the money to Kymberly
Ogburn ("Ogburn"), who was his girlfriend at the time.
In the action, the Commission charges Smartbox and Flowers
with violations of Section 17(a) of the Securities Act of 1933
and Section 10(b) of the Securities Exchange Act of 1934, and
Rule 10b-5 thereunder. The complaint seeks to obtain ancillary
relief from the them in the form of disgorgement, prejudgment
interest and civil penalties and seeks an accounting. The action
also names Ogburn as a relief defendant for purposes of seeking
an asset freeze and disgorgement of funds paid to her by Flowers.
The action does not charge Ogburn with violations of the
antifraud provisions of the securities laws.
Smartbox, located in West Chester, Pennsylvania, is a start-
up company purportedly engaged in the wireless cable
communications industry.